United States Bankruptcy Appellate Panel For the Ninth Circuit
In re: MICHAEL J. LUEDTKE and KATHERINE L. LUEDTKE, Debtors. ROBERT G. DRUMMOND, Chapter 13 Trustee, Appellant,
MICHAEL J. LUEDTKE; KATHERINE L. LUEDTKE, Appellees
Argued and Submitted at Pasadena, California March 20, 2014
Appeal from the United States Bankruptcy Court for the District of Montana. Bk. No. 13-60098. Honorable Ralph B. Kirscher, Chief Bankruptcy Judge, Presiding.
Appellant Robert G. Drummond, Chapter 13 Trustee, Pro se.
Edward Albert Murphy of Murphy Law Offices, PLLC, for Appellees Michael J. Luedtke and Katherine L. Luedtke.
Before: KURTZ, PAPPAS and JURY, Bankruptcy Judges.
Robert G. Drummond, chapter 13 Trustee, objected to confirmation of Michael and Katherine Luedtkes' chapter 13 plan because, in calculating their disposable income for purposes of § 1325(b), the Luedtkes claimed as part of their monthly transportation expenses a $200 " older vehicle operating expense." According to the trustee, this older vehicle operating expense is not part of the Internal Revenue Service's (" IRS's" ) National Standards and Local Standards, which generally control what expenses above-median-income debtors may claim, and there was no other permissible basis for the Luedtkes to claim this expense.
The bankruptcy court overruled the trustee's objection and confirmed the Luedtkes' chapter 13 plan. The trustee has appealed, contending that the court erred when it permitted the debtors to claim the older vehicle operating expense.
Because we agree with the trustee that above-median-income debtors cannot claim the $200 older vehicle operating expense, we REVERSE and REMAND for further proceedings.
The Luedtkes commenced their chapter 13 case in January 2013 and filed their proposed chapter 13 plan in February 2013. To fund their plan, the Luedtkes proposed to make payments of $150 per month for sixty months. The trustee objected to the Luedtkes' proposed plan on the sole ground that, in calculating their disposable income, the Luedtkes claimed not only the $472 standard vehicle operating expense allowed for above-median-income Montana debtors with two or more cars, but also an additional $200 " older vehicle operating expense." Because the Luedtkes improperly claimed the older vehicle operating expense, the trustee asserted, they had understated their disposable income by $200 per month and, hence, they had failed to commit all of their projected disposable income to fund their plan payments, as required by § 1325(b)(1)(B).
In their response to the trustee's objection, the Luedtkes pointed out that one of their two automobiles was a 1993 Ford Taurus with 118,000 miles on the odometer. As a result, the Luedtkes argued, they were entitled to claim the older vehicle operating expense, in accordance with Chapter 8 of Part 5 of the IRS's Internal Revenue Manual (" IRM" ). Chapter 8 sets forth the procedures IRS collection employees are directed " to follow when considering a taxpayer's proposal to compromise" tax liability. IRM 188.8.131.52 (2013). Part 5, Chapter 8, Section 5, of the IRM explains how IRS collection employees should analyze a taxpayers' financial condition for purposes of considering a taxpayer's compromise offer. See IRM 184.108.40.206 (2013). In relevant part, this section of the IRM provides that, when a taxpayer owns an automobile that is over six years old, or has mileage of at least 75,000 miles, " an additional monthly operating expense of $200 will generally be allowed . . . ." IRM 220.127.116.11.3 (2013).
A person unfamiliar with the Bankruptcy Code, and specifically with the 2005
amendments thereto, might be wondering why the IRM, an internal IRS procedures manual, has any relevance to the resolution of an issue regarding the Luedtkes' disposable income for chapter 13 plan confirmation purposes. A short answer will suffice. Before the enactment of the 2005 Bankruptcy Code amendments, bankruptcy courts enjoyed a significant degree of discretion in determining what expenses should be considered reasonably necessary for chapter 13 plan confirmation purposes.
See Drummond v. Welsh (In re Welsh), 711 F.3d 1120, 1130 (9th Cir. 2013). However, for above-median-income debtors, the Bankruptcy Code as amended in 2005 constrains bankruptcy court discretion on this issue by tying the determination of reasonably necessary expenses for chapter 13 plan confirmation purposes to specific benchmarks, in relevant part as follows:
The debtor's monthly expenses shall be the debtor's applicable monthly expense amounts specified under the National Standards and Local Standards, and the debtor's actual monthly expenses for the categories specified as Other Necessary Expenses issued by the Internal Revenue Service for the area in which the debtor resides, as in effect on the date of the order for relief . . . .
§ 707(b)(2)(A)(ii)(I) (emphasis added); see also § 1325(b). In short, the National Standards and Local Standards issued by the IRS, also known as the IRS's " Collection Financial Standards" and as the " Allowable Living Expense (ALE) Standards," see IRM 18.104.22.168 (2012) & 22.214.171.124 (2012), now largely control the determination of what are reasonably necessary expenses for above-median-income debtors seeking to confirm chapter 13 plans.
While they claim an older vehicle operating expense, the Luedtkes concede that it is not to be found in the IRS's Financial Analysis Handbook (IRM 5.15.1), the portion of the IRM which identifies, describes and interprets the IRS's National Standards and Local Standards. See IRM 126.96.36.199, 188.8.131.52 - 184.108.40.206 (2012). As described in the Financial Analysis Handbook, the National Standards and Local Standards consist of expense tables that guide IRS revenue officers to assist them in determining the financial condition of delinquent taxpayers, ...